You are browsing the archive for Forex Strategies.

Forex trading is not just about knowing the rules and terminologies of the trade. It is also about the different strategies that traders need to adopt for gaining success in it. The personality of the traders is an important aspect in this regard. Start with examining the strength and weaknesses of your character trait, for instance, how you will feel if you get an opportunity or what will be your feeling, if you suffer a loss. Make sure that you can adapt well to the varied trading conditions in multiple time frames. It is important for the trading style to match with your personality, or you will soon lose the passion for it.

Plan your trade

You need to plan the trade well in advance; this helps in knowing the trading limits and also the goal. This will also help to take prompt action, if the market behaves the way you have predicted it to do. Never get emotionally attached to the trade. Always remember that every day is not the winning day for traders, and you also need to accept the loses open-heartedly. Based on your strategy, you should have the knowledge of the time that is best for buying and selling the currency. In Forex trading, it is important to be patient and wait for the entry point. Always set realistic goals, so that you can fetch consistent returns every year.

Assess the trading methodology

After you have set the financial goals, now it is the time to determine, how to achieve it. You need to assess the trading methodology that you follow to fulfill the goal. You can do this by analyzing the last twenty trades and calculate the profit that you have earned. This can give a clear picture of the effectiveness of the methodology that you have adapted. Ensure that you have ample resources to fund your trading. The capital used in this form of trading is also known as risk capital. Make sure that you can afford to lose some amount of it without affecting your lifestyle.

Test the currency pair

Test the currency pair that you are planning to trade with, in different time frames. You can start with weekly ones and move on to the hourly or daily charts. Try to determine the trend of the market in various time frames, as this can help you to know, how to trade the currency in those time frames. Once you are determined that you will trade with specific currency pair, then do a background research about them. Go through the recent updates and reviews and tally with the data reflected through the price chart. There is no one-size-fit-all trading system available. Trading is more about the individual trader and their mindset and practices.

Track your trading

You need to pick the methodology that will suit your need and test it in different time frames. This can help you to assess the success rate of the methodology that you follow. With appropriate risk management, you can fetch high profits. Measuring the risk and reward ratio and setting the limit is also important. Try to avoid the mistakes that can lead to severe loses. You can keep a track of the date, time and the strategy that you adapted when you entered the market and the same when you exited it. Also keep a note of the rate at which you entered and exited the market. You can also note the profit or loss percentage, as this helps to identify the trend well in the future. Do not forget to use the best binary options broker, it ensures that you will get a good payout. If the interface is user-friendly, it will also help in smooth trading.

As with any trading situation, timing is one of the most critical elements that must be considered for all of its relevant implications. Timing becomes even more important for technical analysis traders that tend to combine indicators (for example, the MACD with Bollinger Bands). But no matter what your strategy, it is always important to define the ways that trades using the MACD should be timed in certain market situations.

“The first step in timing MACD trades,” said Haris Constantinou, markets analyst at TeleTrade, “is to view price activity within the context of the chart you are watching most closely.” There will usually be other chart time-frames that you will be watching in order to get a sense of the shorter-term and longer-term trends. But you must always remember that your primary chart is the most important viewpoint that you will be using to monitor your trade. The other charts will act only as additional confirmation that your primary views are correct.

Selecting Primary Time Frames

When choosing your desired time frame, the choice is completely up to you and will depend on your daily availability and trading goals, as well as your tendency to put on new positions. Traders with higher frequency tendencies and a greater levels of daily time availability can select from some of the smaller time frames, such as 5 minutes or 30 minutes. Traders with less time availability will likely want to choose from the larger time frames, such as the daily or even weekly chart.

Selecting from the larger time frames will allow you to have more time between trades and will not require you to be in front of the computer as much as an intraday trader. This can be useful for people who are not using forex trading as their primary career but still want to gain some exposure to the forex markets. But, no matter which time frame you are using, it is always wise to take a couple of different charts into consideration before settling on your primary focus so that you can get a sense of the broader picture.

For example, if you are trading on the hourly time frame, you will also want to take a look at the daily charts in order to get a sense of the wider trend. If the daily picture is showing a strong bullish trend, it might be a mistake to take a short position even if the hourly chart looks convincingly bearish. If the daily chart is bearish, in most cases it is not prudent to establish long positions even if the hourly chart suggests that prices are likely to rally higher. So, in both of these cases, your stop loss levels and profit targets will be based on the price activity that is seen in the hourly charts. But the wider time frames will allow you to have a better sense of where the price momentum is headed, and this can help you to increase the probabilities that your trade will be successful.

One thing that separates swing trading from most of the other strategies is the fact that critical support and resistance levels that have been established by the swing move can be used as clear levels for conservative profit targets. This is one factor that distinguishes swing trading from what is seeing in break-out or trend trading. For example, in swing trades on the long side, we can see that prices have found a resistance and started to fall back. A long swing trade would have been established once this decline showed signs of ending (and coming back to resume the uptrend). So, at this stage, we are in along position within the uptrend. Profit targets, however, would be set on approach of the resistance level seen previously. This is because, even though we are in a strong uptrend, there is still some chance that prices will once again find resistance in the same area as before. For these reasons, swing trading allows for a more conservative approach, which calls for profit targets at clear resistance levels.

Short Selling with Swing Strategies

In the case that a bearish long term trend has been established, we will wait for retracements upward so that we can get back into the trend at a more expensive price before entering into short positions. Once these retracements are seen, we will need to find evidence that prices are beginning to turn, or “swing” back into the direction of the downward trend. If we see bearish candlestick formations (such as an evening star or a bearish engulfing candle) or in stalling upward price activity that comes near a significant Fibonacci retracement level (such as a 38.2% or 61.8% retracement), we can enter into short positions in order to capitalize on the overall downtrend. Now that we can see the structure of the downtrend, we will show where swing trading entries could be established in order to capitalize on the expected downward movement.

“In short trades, we can see that prices have found a support and have started to rise,” said Haris Constantinou, currency analyst at TeleTrade.” “A short swing trade would have been established once this rally showed signs of ending (and coming back to resume the downtrend).” So, at this stage, we are in a short position within the downtrend. Profit targets, however, will be set on approach of the support level seen previously. This is because, even though we are in a strong downtrend, there is still some chance that prices will once again find support in the same area as before. Because of this, we look for profit targets at clear support levels.

One of the finals step in the process of opening and closing trades can be seen in the need to confirm your trading signals in an objective manner. Without this, no trades should be opened or closed, as “intuition” should never be relied upon as part of the process. “After you have selected your currency pairs, indicator tools, trading style, time frame and amount of money to invest,” said Rick Bartlett, currency analyst at CornerTrader, “you should select outside confirmation. Specifically, technical analysis strategies can be confirmed using an additional charting mechanism so that false signals can be avoided.

For example, using a Relative Strength Index signal on its own can help to turn the probabilities into your favor, but these should never be taken alone as this will not maximize your odds of success. Instead, traders can achieve objective confirmation by using an additional charting analysis tool, and to look for trading signals that agree with each other.

Patience and Practice

Following these simple steps can allow traders to determining which trading style if best to meet your needs. Patience and practice goes a long when forex trading (especially in the early stages) so as long as you approach your trading with a conservative manner and with realistic expectations, you will likely turn the odds in your favor and beat the performance of the majority of the forex market’s participants.

But the important point to remember here is that technical indicators should not be viewed in isolation, as this will only give you a small part of a much larger picture. Additionally, technical indicators work in different ways. So, if you are able to spot instances where different types of indicators are sending similar signals (i.e. suggesting either a buy or sell position should be taken), there is a much better chance that your trade will be successful than if you had simply relied on one indicator by itself.

Of course, this will require some degree of trial and error. It should also be noted that using multiple indicators will mean that you are able to enter into fewer trades (as your rules for entry will be much more strict). But there should be some calming effects here because you will know that the positions you do take will be higher and stronger in their probabilities.

Using Different Indicators

With all of this in mind, it should be clear that using different types of indicators is what makes the most sense. Using similar indicators will just mean that you are “doubling up” on the same type of signal. This gives you less information when these signals are in agreement, and does little to enhance your trading probabilities. Remember to utilize all the tools in your toolbox, as this will give you the best chance of building on your forex gains.

Comments Off on Using Objective Technical Confirmation before Trades are Opened or Closed

Technical analysis offers us the possibility to look at price and structure it into different chart patterns that are happening over and over again. These patterns are being classified into continuation and reversal patterns. The name for each category speaks for itself in the sense that, if one is looking for a trend to continue and sees specific continuation patterns (pennants, flags, sometimes triangles) then they should be treated as consolidation ranges and look for price to resume the move in the original direction. The opposite is true as well. If one is looking for a trend to end, then the reversal patterns are the ones to be taking into consideration and in this category we have the head and shoulders/inversed head and shoulders, double tops/double bottoms, rising/falling wedges, etc.

One of the most common reversal patterns is the head and shoulder pattern. If we are talking about a rising trend, then the head and shoulders is the reversal pattern. However, if the trend is to the downside, then the pattern it is called inversed head and shoulders.

Regardless the name, the pattern has the same structure: one head, two shoulders, and a neckline. It is a visual pattern, in the sense that the head usually it is being made up by two aggressive move, and the consolidation takes place on the two shoulders. Because price is spending most of the time consolidating when forming the shoulders, such a pattern is somehow easy to spot and to trade. The image below shows a typical head and shoulders pattern, with all three elements being visible: head, shoulders, and the neckline.

However, the main problem of a trader does not come from identifying such a pattern, but how to trade it? Well, in order to trade it, there are some things to take into consideration:

– drawing the neckline properly: some traders draw the potential neckline connecting the absolute highs/lows of the candles (basically taking into consideration the shadows of the candles as well) and this is a method I disagree with especially if you are trading the currency markets as volatility there is high and candles often have shadows that are “hiding” the real move price makes. So, in order to avoid fake breaks, try to draw the neckline connecting the real bodies of the candles, not the shadows. An example is shown in the image below;

– it is usual (but not mandatory) that a neckline, once broken, to be retested. While this is happening quite often, sometimes waiting for such a retest is useless as the whole measured move of the pattern may be done before the retest (if any) to take place;

– like mentioned above, the pattern comes with a measured move, but here’s a catch too, again, especially if one is trading the currency markets. The typical measured move calls for price, after breaking the trend line, to travel the same distance as the distance from the top/bottom of the head until the neckline. While this is true most of the times, experienced traders are looking not for the whole measured move to come, but for 61.8-75% of it, as sometimes the last pip tends to be the most expensive one;

– last but not least, try to take the time element into consideration, and this is possible by looking at the time taken for price to consolidate in the left shoulder and then apply the same time to the right shoulder to form. That would give any trader a competitive advantage in having an educated guess about the possible moment of time the neckline is about to be broken.

The most important thing to take into consideration when looking at head and shoulders/inversed head and shoulders pattern is the fact that such a pattern is a powerful reversal pattern, and, even if it comes with a measured move, this is only to provide a quantifiable outcome for it. If the pattern is real, than the outcome of it should be a strong reversal move, most likely signaling the beginning of a new trend. And this kind of information is the one that every trader is looking for.

This article is a contribution by John from Forex Brokers Hub, the site which features detailed reviews of the most popular Fx brokers.

As you can see on the left, after the Kumo support breakout, prices started to retrace. Traders who are looking to re-enter this well established bearish trend can draw a Fibonacci retracement on the last swing low, and we see here prices retrace to the 38.2 line, before resuming the down trend.

Note on the right how the 50% retracement line sits on top of a flat orange Kumo top. If prices had broken above this line, through a bullish Kumo break out, the downtrend would be void. While Fibonacci lines do not always pin point exact reversal points, prices tend to hover around Fibonacci levels, and these can be helpful for those employing the Ichimoku forex indicator.

Pivot point trading is one of the forex trading strategies commonly used by forex traders. In pivot point trading the moves from the previous days are calculated and forex trades are entered into when the forex market reaches a support or resistance line that is in the pivot point – of course, with the assurance that the OB/OS indicator supports the move. The support and resistance lines are already placed before you trade and then you wait until the entry points that have been set are hit.

Pivot point trading is quite popular among forex traders, partly because it is such an established trading strategy. In fact, it was one of the most used trading methods before the advent of computers. Pivot point calculations were used to look for hidden support and resistance levels. With the help of computers it is now easier to calculate pivot points and do it far in advance.

Pivot Points Explained

The forex market can only move between an x and y axis, that is, it can move up and down or sideways. Prices may go up or down but at some point it will always go back to a point of equilibrium – a state in which the market is balanced. This happens over and over again. The pivot points can help in determining the amount of stretch the market can take before it rebounds to its state of equilibrium.

Calculating pivot points entails choosing the time frame for the calculations. In this discussion, let us use the 24 hour time frame. Pivot points are determined by calculating the open, high, low, and close prices of the previous day’s trading. Calculations can be done automatically using the various pivot point calculators that’s available online. The time frame you use will have a direct bearing on the amount of time you also need to invest in your trade. The longer the time frame you use the longer you also need to stay in the market to wait for that entry point you identified.

If you are looking for a truly objective indicator then pivot points are for you. Since the basis for pivot points is based on pure mathematics no subjectivity can ever enter the picture unlike subjective indicators like Elliot waves or Fibonacci retracements where things depend on the individual interpretation of data.

Entry and exit points explained

Pivot points provide traders with exact entry and exit points, which is quite invaluable since it removes the speculation and uncertainty of when to enter and exit the market, which is what you experience with other indicators wherein you may enter during the middle of a run or when it’s about to rebound and move towards the opposite direction. With pivot points, if the price begins to stall at a pivot point level then it’s a sign that you need to either get in (if you haven’t entered yet) or get out (if you’re already committed to the right direction with an open trade).

When trading over the course of the day, it should be contained within the first support and resistance levels as the floor traders still make their markets. Upon the breaching of these levels, other traders will start getting attracted to the market. Breaching the second level will now attract longer term traders.

There is a lot of value in knowing where floor traders expect the support or resistance. It becomes even more important if there are no external influence on the market. If there are no crucial market or economic news that happened within the span of yesterday’s trading and before the opening in today’s market, floor traders and market makers will usually move the market between the pivot point and the first support and resistance. If these levels are penetrated then the market will test the next support or resistance levels.

These are the very basics of pivot point trading. While there are more nuances to this trading method you can start using this basic method to get comfortable with this kind of forex trading strategy.

About The Author

Mario Singh is the owner of popular forex trading site Askmariosingh.com

You may be surprised to know that Fibonacci forex trading is the foundation of many forex trading systems that are being used by forex traders all over the world. Many traders have been able to profit quite well using trading techniques rooted in the Fibonacci sequence. Read the rest of this entry →

There are basically two types of Moving Averages that forex traders rely on for their trading analysis – the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). Both of these technical tools have their pros and cons. But which one should you use?

The Exponential Moving Average

If you’re a trader who wants to use a moving average that will be more react more to price action more robustly then a short period Exponential Moving Average is what you should use.

An EMA will be more useful in showing you developing trends earlier, which of course can result in higher profits if you get into it early enough. Catch it at the right time (at the very beginning of a trend) and you can ride the movement and start earning serious money.

There is a disadvantage though. When you use exponential moving averages you are more vulnerable to getting caught flat footed when there is a consolidation period. Since the moving average is so responsive, it will move very quickly based on the price fluctuations and at some point you may think that it is the start of a trend when all it is could be just a price spike. Sometimes being too fast is not a good quality.

The Simple Moving Average

A Simple Moving Average (SMA) is what you use if you want to use a moving average that is responds to price action more slowly and also has smoother tracking.

An SMA is the best choice if you want to study longer time frames because it will give you a more accurate picture of an overall trend.

Even though it is slower to react to price actions, it also makes it more immune to the possibility of fake outs, which, as illustrated above, may cause you a lot of problems in the event you fall victim to one.

The downside to an SMA is mainly what also makes it a beneficial moving average choice – its slowness. Since an SMA is slower to respond to price action it may also cause you a lot of delays. It is also highly likely that you will miss out on a good point to enter a trade or, worse, miss the trade entirely.

So to recap:

SMA – produces a smoother, more deliberate chart that removes the possibility of any fakeouts. But it is slow moving, and this slowness may result in you not getting into good trade points early enough.

EMA – very fast and quite useful in showing price swings because it reacts to price actions quickly. But this speed makes you more vulnerable to fakeouts and may also give erratic signals.

It will be up to the trader to decide whether to use an EMA or SMA. But the best way to use them is to employ both based on the benefits that they will give you.

We received an Ichimoku MT4 alert of a Chikou Span (black lagging line) break below price close and Kumo, as highlighted in the yellow circle. This is confirmation of a bearish movement as EURUSD falls from a recent high of 1.3413.

As seen in the purple circle, there was an attempt to break below the Kumo cloud, but price failed to close below it as the Kumo provides support. With the Tenkan Sen (green line) already weak crossing the Kijun Sen (red line), traders will look for a Kumo break to the downside, with price target of the recent low of 1.2843. You may please check MT4 alert at StreetPips.

One of the unique features of the forex market is that it is open 24 hours a day, and five days a week. The fact that the market is open for such a long time gives traders a lot of opportunity to earn at any hour of the day. The diligent trader who waits for good entry points has the potential to earn tremendous profits from his trades because he can enter the market numerous times at any time of the day. Read the rest of this entry →

Margins offer forex traders a huge benefit – it gives them the opportunity to trade in large volumes but using just a small amount of money. When a trader uses a margin account he is basically borrowing funds to use in his trading so that he can gain a higher return on his investment (the money he enters the trade with). A forex trader uses the margin account with the leverage that is acquired using the borrowed funds. This allows for the initiation of larger trading positions using just a small capital. For example, a trader, using funds as little as 50 to 100 dollars, can enter into trades that amount to 10,000 to 100,000 dollars. This is one of the more unique qualities of forex trading.

Using a Margin Account

A trader who wants to use a margin account must first sign up with a broker, an online forex discount broker or applied with the chosen forex platform. After sign up, this is when the account is set up.

Before any trade using the margin account commences, money needs to be deposited first into the margin account. The amount of money deposited will be dependent on the percentage that the broker and the investor agrees on. Usually though, the percentage be within 1 to 2 percent if the currency units are 100,000 or more. What this means is that if the investor/forex trader deposits 1 percent that will be used for trading, the margin account will provide 99 percent of the funds.

The trader’s margin account will not be imposed with any interest but if is not able to close the position he’s in before the specified delivery date then the amount is going to be rolled over. This is the time when interest will be imposed, which also depends on the position.

The Margin Calls

What are margin calls? Let’s use an example to better illustrate what it is. A broker uses a $1,500 security on his margin account. If the trader who has an agreement with the broker begins to lose and the loss may reach the security of $1,500, the broker can start a margin call. When this happens, the broker may choose to ask the trader to place more money into his margin account or he can choose to close the losing position in order to limit any further loss. Many brokers will opt for the latter and just close positions once a margin call has been reached.

Margin Accounts and Forex Risks

While being able to trade with larger amounts despite a small capital is the biggest benefit of using a margin account it is still not without risks.

You need to be very vigilant when trading with margins – be fully aware of all the conditions that come with using a margin account and ask advice from more experienced traders about the benefits and pitfalls of margin trading. Only when you’re fully aware of all that you need to know about margin accounts should you consider opening a margin account.

About The Author

Famous forex professional Mario Singh owns Askmariosingh.com, a site dedicated to forex news and forex strategies.